Middle East ripe for LNG producers

Australia’s many liquefied natural gas ventures should not become too China-focused and overlook the “huge prospect" of the emerging Middle East market, global oil and gas expert Fereidun Fesharaki has advised.

Total LNG shipments into the nascent Middle East market, a region that only started imports last year through Kuwait, could rival imports into the closely watched Chinese market by the end of the decade yet the opportunity is at risk of being missed, said Dr Fesharaki, a former energy adviser to the Prime Minister of Iran and now chairman of consultancy FACTS Global Energy.

Australian LNG ventures should be courting the various emerging Middle Eastern buyers, who are looking increasingly seriously at potential gas import sources to avoid burning crude oil for power generation, Dr Fesharaki said. Despite Qatar being the world’s dominant LNG exporter, its Middle Eastern neighbours are keen to import from a variety of suppliers and geographical regions, he added.

“As they become long-term buyers they have to focus on projects that they know," said Dr Fesharaki, who expects some Middle East nations to start discussions on Australian supplies in the next year or two. “This gives an opening to Australian exporters."

Dubai is set to start importing LNG next year, followed by Bahrain in 2013, then Sharjah and Saudi Arabia, according to FACTS. Towards the end of the decade Saudi Arabia alone could be importing 10-20 million tonnes per year, he told The Australian Financial Review.

Dr Fesharaki will today present his outlook for Australian and world LNG markets at the Australian Institute of Energy conference in Adelaide.
Santos
chief executive David Knox and Caltex Australia boss Julian Segal will also address the congress.

Also presenting will be International Energy Agency deputy executive director Richard Jones, who has previously cautioned that some of Australia’s $220 billion of planned LNG ventures will inevitably fall by the wayside as competition for markets, gas resources and construction capacity takes its toll.

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Some 35 million tonnes per year of LNG production capacity has been given the go-ahead in the Australian region since Woodside took the decision in 2007 to build the Pluto project in Western Australia. Another 25-30 million tonnes is due to be sanctioned over the next 12 months including projects by Santos,
Woodside
, Chevron and Royal Dutch Shell.

The IEA, an advisor on energy policy to 28 member nations, is still forecasting rapid growth for Australian gas production. In its influential World Energy Outlook report last week, the Paris-based agency predicted that Australia would become the world’s third-biggest gas producer by 2035, topped only by the US and Canada.

Dr Fesharaki acknowledges that some Australian LNG ventures face “infrastructural nightmares" to get their gas to market, including difficulties with onshore plant development for the huge Browse Basin gas resources.

The availability of gas resources, labour and construction capacity constraints are also expected to hamper some ventures’ export ambitions and target timetables.

Still, price will be the single most critical factor and the expected continued success of the Organisation of Petroleum Exporting Countries in keeping prices high plays into the hands of the Australian LNG industry, Dr Fesharaki said.

OPEC has done a spectacular job of keeping crude oil prices in the $US70-$US80 a barrel range this year, when otherwise they may have fallen as low as $US40-$US50, he said.

With oil supply from the non-OPEC region nearing its peak, he expects OPEC to seek to move prices higher towards $US85 or $US90, while avoiding volatile price swings.

As LNG contract prices in Asia are closely linked to crude oil prices, that augurs well for Australian projects, which should all be economic at crude prices of over $US70, whereas none would go ahead at $US40 or $US50, Dr Fesharaki said.

“Don’t worry about demand, if the price of right then the demand will be there," he said.